AAPL.O

John Willoughby – August 30, 2016 02:02PMReplyQuoteCyberdyne Systems Customer Support

Still, seems like an argument between Ireland and the EU. Odd for the EU to demand that Apple pay back taxes to Ireland. I would have thought that the proper course would be for the EU to inform Ireland that their policy did not conform to EU law and then for the bickering to take place between them. Once the dust settled, if the EU won, I would expect Ireland to change its policies... perhaps paying a fine to the EU.

I didn't realize that the EU could reach past a member nation's government and order sums paid from corporations doing business there. Whenever I feel like the EU is a group of cooperating nations, it does something that makes it look like a super-government over the member nations. And vice versa.

John, the EU isn’t forcing Apple to do anything - it’s forcing Ireland to follow the EU’s laws (charge the same tax rate for all companies - no favoritism). While this particular investigation focused on Ireland’s forgiveness of Apple’s tax liabilites, other nations’ grants to other companies have been, currently are, and will continue to be, subject to similar investigations and actions.

El Jeffe, companies that rely on government granted monopolies (copyrights / patents) to generate their profits have no real ability to “take their marbles” anywhere the government doesn’t want them to.

Johnny, Ireland authorized Apple to set up shell companies that exempted nearly all of Apple’s European profits from taxation. This is not something it does for all companies (e.g., mom & pop stores), and is therefore illegal, as explained:

QuoteEuropean Commission
The taxable profits of Apple Sales International and Apple Operations Europe in Ireland are determined by a tax ruling granted by Ireland in 1991, which in 2007 was replaced by a similar second tax ruling...

Apple Sales International is responsible for buying Apple products from equipment manufacturers around the world and selling these products in Europe (as well as in the Middle East, Africa and India). Apple set up their sales operations in Europe in such a way that customers were contractually buying products from Apple Sales International in Ireland rather than from the shops that physically sold the products to customers. In this way Apple recorded all sales, and the profits stemming from these sales, directly in Ireland.

The two tax rulings issued by Ireland concerned the internal allocation of these profits within Apple Sales International (rather than the wider set-up of Apple's sales operations in Europe). Specifically, they endorsed a split of the profits for tax purposes in Ireland: Under the agreed method, most profits were internally allocated away from Ireland to a "head office" within Apple Sales International. This "head office" was not based in any country and did not have any employees or own premises. Its activities consisted solely of occasional board meetings. Only a fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland. The remaining vast majority of profits were allocated to the "head office", where they remained untaxed.

Therefore, only a small percentage of Apple Sales International's profits were taxed in Ireland, and the rest was taxed nowhere. In 2011, for example (according to figures released at US Senate public hearings), Apple Sales International recorded profits of US$ 22 billion (c.a. €16 billion[1]) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland, leaving €15.95 billion of profits untaxed. As a result, Apple Sales International paid less than €10 million of corporate tax in Ireland in 2011 – an effective tax rate of about 0.05% on its overall annual profits. In subsequent years, Apple Sales International's recorded profits continued to increase but the profits considered taxable in Ireland under the terms of the tax ruling did not. Thus this effective tax rate decreased further to only 0.005% in 2014...

Commission assessment
Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions.

The role of EU state aid control is to ensure Member States do not give selected companies a better tax treatment than others, via tax rulings or otherwise. More specifically, profits must be allocated between companies in a corporate group, and between different parts of the same company, in a way that reflects economic reality. This means that the allocation should be in line with arrangements that take place under commercial conditions between independent businesses (so-called "arm's length principle").

In particular, the Commission's state aid investigation concerned two consecutive tax rulings issued by Ireland, which endorsed a method to internally allocate profits within Apple Sales International and Apple Operations Europe, two Irish incorporated companies. It assessed whether this endorsed method to calculate the taxable profits of each company in Ireland gave Apple an undue advantage that is illegal under EU state aid rules.

The Commission's investigation has shown that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits within Apple Sales International and Apple Operations Europe, which has no factual or economic justification. As a result of the tax rulings, most sales profits of Apple Sales International were allocated to its "head office" when this "head office" had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter. Only the Irish branch of Apple Sales International had the capacity to generate any income from trading, i.e. from the distribution of Apple products. Therefore, the sales profits of Apple Sales International should have been recorded with the Irish branch and taxed there.

The "head office" did not have any employees or own premises. The only activities that can be associated with the "head offices" are limited decisions taken by its directors (many of which were at the same time working full-time as executives for Apple Inc.) on the distribution of dividends, administrative arrangements and cash management. These activities generated profits in terms of interest that, based on the Commission's assessment, are the only profits which can be attributed to the "head offices"...

On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules.

This decision does not call into question Ireland's general tax system or its corporate tax rate.

John Willoughby – September 01, 2016 07:56AMReplyQuoteCyberdyne Systems Customer Support

But isn't it weird that the EU is holding Apple (not an EU state) responsible for provisions granted by Ireland (a member state)? Shouldn't the beef be with the government subverting what is (apparently) EU law?

QuoteJohn Willoughby
But isn't it weird that the EU is holding Apple (not an EU state) responsible for provisions granted by Ireland (a member state)? Shouldn't the beef be with the government subverting what is (apparently) EU law?

Not really. For a rough analogy, imagine a local county assessor's office, in violation of state law, values the property of all his developer buddies at $100/acre for taxation purposes. Then a State auditor discovers these properties have been routinely bought and sold for $32,000/acre, and State law permits a 10 year lookback period for tax assessments.

Is the proper response to just fine the county and let the developers off the hook? Or should the State force the county to reassess the property and recover lost taxes from the developers who were paying basically nothing for the past 10+ years? Is the fact that the developers are not a subsidiary of State government in any way relevant to whether or not they should pay up? As you craft your answer, know that a few years ago, the state had to bail out the county because it was on the verge of bankruptcy, and the county is still suffering from a crippling debt load.

John Willoughby – September 01, 2016 03:36PMReplyQuoteCyberdyne Systems Customer Support

Then shouldn't Apple (and all other international corporations) negotiate their deal directly with the EU, rather than Ireland? Since Ireland is not allowed control of this aspect of their economy.

The EU doesn't collect income taxes – the individual states do. They just have to do it in accordance with EU law. This particular provision was designed to stop nations from favoring their own companies (with tax breaks) over other EU nations' companies, but it's broad enough to go after tax-dodging multinationals as well.

Well that is what happens when you take the eye off the ball and think you should build cars vs phones and computers. I mean really 1042 days for a Mac Pro update! 525 days for laptops! I keep reading about the excuse that well it is Intel's fault, really? How about new video chips, or USB C, or a 4K screen, etc. Those could have all been released by now.

John Willoughby – October 25, 2016 05:09PMReplyQuoteCyberdyne Systems Customer Support

To be fair, Apple's in an incredible position again with the collapse of Android. Samsung's dead, and they've got to be mighty pissed about Pixel. And Pixel seems like a dog. Google's never been good with hardware.